Zell bends on union construction for New York project

(Crain's) — Sam Zell — organized labor's billionaire bogeyman for the proliferation of nonunion construction in the city — is going union.

A $190 million residential tower being developed by Mr. Zell's Equity Residential on Park Avenue South and East 28th Street will be built with union labor, a building-trades source said. And Mr. Zell is getting a discount: Lend Lease, the construction manager on the project, which is being developed with Toll Brothers, has reached an agreement with the Building and Construction Trades Council that will knock 20% off standard union labor costs.

His decision comes after a period when organized labor bashed Chicago-based Equity Residential for swooping into the city to construct a 111-unit building on West 23rd Street with nonunion workers. Union members followed Mr. Zell to public speaking engagements with raucous protests, and website EquityResidentialWatch .info dished dirt on his company.

At the same time, local contractors and developers made the real estate investment trust Exhibit A in their case that if construction unions didn't offer meaningful concessions, more and more projects would go nonunion. Mr. Zell's West 23rd Street project, his first major build-out in New York, served as the backdrop for contentious contract negotiations last summer between unions and contractors.

The move by Mr. Zell appears to be a practical decision based on a combination of the labor discount, the scale of the new 40-story building and the presumed need to get future projects approved by local government.

ST. JOHN THE DIVINE SITE NEXT

A union source said a similar cost-savings agreement had been reached by construction manager Plaza Construction for an Equity Residential mixed-use project on Amsterdam Avenue between West 66th and West 67th streets, but noted it now appears the 230-unit residential building was on the verge of going nonunion anyway.

Equity Residential is in the early stages of discussions with unions on an agreement at a third development site, on the grounds of the Cathedral Church of St. John the Divine, where it hopes to construct a 12- to 14-story apartment building. The development faces opposition from community members who want the parcel landmarked. Equity Residential could use help from the building trades in moving the project forward, which might tilt that development into organized labor's fold.

“Zell will make whatever economic decision is right,” said one real estate executive who closely follows Equity Residential. “I don't think they've found religion and are saying, 'Ooh, we need to go union.' ”

An Equity spokesman did not return several calls seeking comment. A Lend Lease spokeswoman referred calls to Equity Residential.

Equity Residential agreed to the union deal at a time when organized labor has expanded its offering of concessions to help spur residential work in Manhattan. More than $1 billion in projects are making use of a Manhattan residential project-labor agreement reached between labor, developers and contractors late last year. Developments worth hundreds of millions more are queued up to take advantage of the agreement.

But some developers say the harvest is lacking. Major projects are being built by nonunion workers across Manhattan, a development unthinkable just a decade ago. And some industry insiders say it's more relevant to look at decisions by a long-standing developer in New York, such as AvalonBay Communities, than a relative newcomer like Equity, which is still feeling its way. AvalonBay was offered a labor agreement on its massive West 28th Street residential project near 11th Avenue, and bid it out both union and nonunion. But it's already using nonunion Bohemia Concrete to pour the foundation.

“I think we're making progress, but we have to continue to find a way to reduce union construction costs if we're going to stem the tide of nonunion work,” said Louis Coletti, president of the Building Trades Employers' Association, which represents union contractors.

SAVINGS MAY NOT MATERIALIZE

Other major developers, including Toll Brothers, the Elad Group and the Brodsky Organization, are building projects nonunion.

In project-labor agreements between unions and developers, individual trades decide how to produce the savings—usually a combination of staffing and work-rule changes, cuts in hourly rates in wages and reductions in fringe benefits.

Some in the real estate industry are not convinced that savings promised in project-labor agreements always materialize and are tired of trying to make them work.

Signing up Mr. Zell is a victory for labor, but it's far from the end of a construction debate that shows no sign of ebbing.